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American Expat Tax FAQ: Do I need to Pay Taxes Abroad?

Transcript of the above video:

As the title suggests, we are going to be talking about Americans abroad and do they need to pay taxes? This is a question I have come up fairly frequently. It seems like kind of a simple question but, it may not have a simple answer.

Do I need to pay taxes abroad? Well it depends. Do you earn money abroad? Do you have foreign earned income? If so, how much? Foreign Earned Income is, there is a Foreign Earned Income Exclusion for those who primarily, and by primarily I mean 335 days out of a given calendar year, spend their time abroad. Those individuals who earn income abroad may have a certain portion or all of their income excluded from income tax in the United States, if their overall yearly earnings are lower than the, what is called the Foreign Income Exclusion threshold. That threshold does move up year on year. It is sort of like a cost of living adjustment so the number is going to change as time goes on, but yes it may be possible that you don’t have to pay taxes. That being said, you may have to file taxes. There is another video on this channel where we specifically get into the question of “Do I have to file taxes abroad?” In most cases, “yes, you do have to file taxes if you are abroad; especially if you are earning money”. Well I should say, most people are going to have to file taxes abroad. Some will not. There are the rare cases where there are genuinely individuals who earn no money; infants or something, the elderly who don’t have a job. Those may be instances where filing is unnecessary or where the individual in question does not meet the income threshold to even have to file. That being said and this is the important part about this video. If one earns income outside the United States and wishes to enjoy the benefit of the Foreign Income Exclusion they need to file their taxes because only by filing does one get to use the exclusion. So if one spends years and years outside the United States without filing their taxes and they have been earning income and the IRS audits them and comes to find out “where has this guy been? How much money is he making?” that can lead to a real problem because it may result that one cannot use the exclusion after they have been audited. It is like playing tag and if you are caught before you file, the Foreign Earned Income Exclusion may not apply. So, the thing to take away from this video is, you may owe taxes, you may need to file. Again it is going to be circumstantially dependent. It is strongly recommended that those watching this video who are interested in this topic contact legal and tax professionals in order to get a more informed opinion on this issue specifically.

The thing to take away from this video is “yeah, you probably do have to file if you are earning income abroad but you may not need to pay anything and as a result, it is going to sort of end up a net wash; it all comes out in the wash. But another thing to take away from this video is you may not necessarily get to use the Foreign Earned Income Exclusion abroad if you haven’t been filing and if you have been caught out having not filed at the time that you try to deal with getting your income excluded.

So again, all of this stuff is going to be fact based. Again it is strongly urged to contact a professional in these matters but this is just sort of a summary video to provide some clarity and insight into this issue.